With only about a month left, a pivotal tax decision looms for married couples nationwide. As Tax Day nears, they confront a major choice: Should they file their tax returns jointly or separately? This decision is critical as it directly impacts their income tax rate. Their choice influences the potential to owe money, the standard deduction applicable to them, and the claimable credits. Additionally, it impacts the chances of receiving a refund.
Tax Filing Status Options
The Internal Revenue Service (IRS) outlines five distinct filing statuses for taxpayers:
● Single
● Married, filing jointly
● Married, filing separately
● Head of household
● Qualifying surviving spouse
A single status is for those who are unmarried, divorced, or legally separated. Taxpayers who care for a dependent person may qualify for the head of household status. However, for married individuals, the decision is between filing jointly or separately.
The Complications of Filing as Married
Mark Steber, the chief tax information officer affiliated with Jackson Hewitt Tax Services, underscores a crucial point: The tax filing decision isn't as simple as it seems. The choice between filing jointly or separately could lead to financial consequences. For context, in 2021, around 3.9 million individuals opted to file separately. This figure equates to the population size of Los Angeles. Intriguingly, this group comprised only 2% of all taxpayers.
Why Choose to File Separately?
Filing separately may seem rare and potentially less beneficial than filing jointly due to certain tax benefits that are not available. However, according to Steber, there are circumstances where filing separately could be the better option. These include cases where one partner's financial situation differs significantly from the other's or during marital separation. The primary benefits of filing separately are:
● Financial independence in tax liability
● Maintaining separate financial responsibilities, especially in the event of a possible divorce
● Potential benefits in individual tax situations, such as disparate incomes or deductions
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Possible Disadvantages
Choosing to file separately can lead to the forfeit of several beneficial tax credits, including:
● Dependent Care Credit
Moreover, essential considerations exist for the standard deduction. The year 2022 brought specific rules for the tax year 2023. There's a particular amount for married couples who choose to file jointly. They receive a standard deduction of $27,700.
On the other hand, couples filing separately see a different figure. Their deduction decreases significantly. It is set at $13,850. There's an additional rule worth noting. When one spouse decides to itemize deductions, it impacts the other. The standard deduction is no longer available to the other spouse.
Community Property States Consideration
When filing separately, spouses in states with community property, like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, must report half of the total community income and deductions. This requirement can make filing separately more complex in these states.
Final Tips for Married Taxpayers
Taxpayers have a choice. They may select a filing status that offers the lowest tax liability. For married couples, a usual benefit emerges. Often, they gain more from filing jointly. Yet uncertainty can arise. In such cases, consulting a tax professional is wise. The IRS lends a hand, too. It provides an interactive tool that aids in finding the best filing status.
Bear a crucial fact in mind. Were you married at any point in 2023? If yes, then you qualify. You are eligible to file taxes as married for that entire year. But timing matters. Was your wedding on New Year's Day or following it? If so, patience is required. You then must wait. The next filing season is your time to decide on your filing status.
The tax filing decision remains significant for married couples and demands careful consideration to optimize financial and tax outcomes. With tax day fast approaching, couples must evaluate their circumstances and decide on the most advantageous course of action.
